Problem 23-5A Analysis of sales mix strategies LO A1 Edgerron Company is able to
ID: 2431946 • Letter: P
Question
Problem 23-5A Analysis of sales mix strategies LO A1 Edgerron Company is able to produce two products, G and B, with the same machine in its factory. The following information is available Selling price per unit Variable costs per unit Contribution margin per unit Machine hours to produce 1 unit Maximum unit sales per month Product G $230 180 $130 0.4 hours 650 units Product B $260 156 $104 1.0 hours 250 units The company presently operates the machine for a single eight-hour shift for 22 working days each month about operating the machine for two shifts, which will increase its productivity by another eight hours per day for 22 days per month This change would require $13,000 additional fixed costs per month. (Round hours per unit answers to 1 decimal place. Enter operating tosses, if any, as negative values.) Management is thinkingExplanation / Answer
(1)
Product G
Product B
Contribution Margin pu
130
104
Machine Hrs pu
0.4
1
Contribution Margin per Machine Hr
325
104
Product G
Product B
Total
Maximum no of units to be sold
650
250
Hrs required to produce maximum units
(650 * 0.4)
=260
(250 * 1)
=250
510
(2) Continues to operate only one shift :-
Total Hrs available in 1 shift = 22 days * 8 hrs = 176 hrs
First we need to produce Product G
Then we need to produce Product B
Product G
Product B
Total
Hrs dedicated to the production of each product
176
0
176
Units produced for most profitable sales mix
440
0
Contribution margin per unit
130
-
Total contribution-one shift
57200
-
57200
(3) If company adds another shift:-
Total Hrs available = 22 days * 16 hrs = 352 hrs
Product G
Product B
Total
Hrs dedicated to the production of each product
260
92
352
Units produced for most profitable sales mix
650
92
Contribution margin per unit
130
104
Total contribution-two shift
84500
9568
94068
(-) Additional Fixed cost
13000
Net contribution
81068
(-) Total contribution-one shift
57200
Net Benefit
23868
Yes the company should persue this strategy
(4) Product G maximum sales to 700 units per month :-
Product G
Product B
Total
Hrs dedicated to the production of each product
280
72
352
Units produced for most profitable sales mix
700
72
Contribution margin per unit
130
104
Total contribution-two shift & marketing campaign
91000
7488
98488
(-) Additional Fixed cost- two shift
13000
(-) Additional Fixed cost- marketing
12000
Net contribution
73488
(-) Total contribution-two shift
57200
Net Benefit
16288
No company should not persue this strategy
Product G
Product B
Contribution Margin pu
130
104
Machine Hrs pu
0.4
1
Contribution Margin per Machine Hr
325
104
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